Thousands of former students of a nationwide beauty school chain may be able to avoid payment on federal student loans used to pay tuition at the now-defunct company.

A federal appeals court recently ruled that borrowers who used federal loans to pay for programs at the Wilfred Academy could pursue a case against the U.S. Department of Education regarding its entitlement to collect on student loans even though Wilfred engaged in financial aid fraud prior to its shut down in 1994.

Prior to its closure, Wilfred had received more than $400 million in federal student aid from more than 60,000 students at approximately 60 campuses operated around the United States.

Low-income borrowers are often the "primary targets of predatory schools," according to Harvard Law School official Toby Merrill, who is supporting the student borrowers in the case. Merrill told Reuters that the court decision shows that the Department of Education must consider the rights of former students in such cases.



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